Health spending growth in 2012 low for fourth consecutive year

The modest acceleration of Medicaid spending growth coupled with a slight slowdown in Medicare and private health insurance spending growth generated the fourth consecutive year of low overall health spending growth in 2012, according to an article published in the January 2014 issue of Health Affairs.

In 2012, total U.S. health care spending increased by 3.7 percent to $2.8 trillion, perpetuating relatively stable growth in national health spending since 2009.

“The relative stability since 2009 primarily reflects the lagged impacts of the recent severe economic recession," wrote the article’s lead author, Anne B. Martin, an economist in the Centers for Medicare and Medicaid Services’ Office of the Actuary in Baltimore, and colleagues. 

While national health expenditures increased from 3.6 percent in 2011 to 3.7 percent in 2012, 85 percent of overall national health spending was attributed to personal health care spending (which experienced a 3.9 percent increase in 2012). This rise in personal health care spending was due to hospital services spending, which increased 4.9 percent in 2012 from 3.5 percent in 2011. Physician and clinical services spending increased 4.6 percent in 2012 and was the second biggest contributor to the increased spending growth in personal health care.

Though increased growth was seen for spending in hospital care and physician and clinical services, there was slower growth in spending for prescription drugs and nursing home care. Prescription drug spending increased at a rate of 0.4 percent in 2012, which had experienced a 2.5 percent growth the previous year. Nursing care spending growth went from 4.3 percent in 2011 to 1.6 percent in 2012 as Medicare lowered payments for skilled nursing homes in adjustment for a large increase in payments that occurred the prior year.

Among health care payers in 2012, faster growth in Medicaid and out-of-pocket spending occurred while private health insurance and Medicare spending experienced slightly slower growth. Medicaid spending growth increased from 2.4 percent to 3.3 percent within the year. Conversely, Medicare spending growth slowed from 5.0 percent to 4.8 percent.

Martin and colleagues identified five broad factors behind national health spending growth: economywide inflation, medical-specific inflation, population change, shifts in the age and sex mix of a population, and other nonprice factors. Though the per capita spending growth maintained stability in 2012, the factors contributing to that growth were more dynamic. Medical price growth slowed down to 1.7 percent in 2012 and was attributed to over half of the 3.0 percent increase in per capita health spending.

Twenty percent of national health spending in 2012 was comprised of Medicare expenditures, amounting to $572.5 billion. Medicare enrollment rose to 4.1 percent in 2012 for all beneficiaries, becoming the largest one-year increase in enrollment in 39 years. In 2012, Medicaid spending by both federal and state governments reached $421.2 billion, which accounted for 15 percent of total national health expenditures. Medicaid spending increased by 3.3 percent in 2012 due to slower enrollment growth and efforts by the states to control costs after the expiration of enhanced federal matching rates.

As the economy continued to improve in 2012, GDP grew faster than health care spending which lead to a slight fall in the health spending share of the economy. This reality, in combination with the mixed spending trends of Medicare and Medicaid, lead to the continuation of a low growth in healthcare spending. This pattern has been noted in historical experience, yet many are questioning if a more fundamental change is on the horizon for the health sector. The authors wrote, “From our perspective, more historical evidence is needed before concluding that we have observed a structural break in the historical relationship between the health sector and the overall economy.”